Published on June 24, 2005

The Bank of Thailand (BOT) expects a current-account deficit of slightly more than US$1 billion (Bt41 billion) this year, due to high oil prices.

Central bank Governor MR Pridiyathorn Devakula said yesterday that the high cost of oil was creating a current-account deficit a year sooner than expected. The central bank had earlier predicted it would occur next year.

Pridiyathorn said on June 10 that he did not expect this year’s deficit to surpass $3 billion.

However, he insisted yesterday that it would not be a severe problem, as the country still had high international reserves.

“It’s lucky that we’ve accumulated international reserves that can absorb deficits for at least 10 years. We can be comfortable with a deficit of only $1 billion,” he said.

Thailand’s official reserves as of June 10 were reported to be $48.3 billion. The current account recorded a deficit of $3.1 billion over the first four months of this year, compared with the BOT’s earlier forecast of a surplus of between $1 billion and $2 billion.

Customs officials on Wednesday released figures showing a preliminary trade deficit of $930 million in May, due to surging imports. Imports rose 22 per cent, because of higher prices for oil and other materials, such as steel. Exports in May grew by 9 per cent.

Phatra Securities said the May current-account deficit could be much worse than expected. Since now is the low season for tourism, the service-account surplus for the month over the past five years averaged only $200 million.

Based on that, the broker said, a current-account deficit in excess of $700 million could be expected for May, compared with an earlier forecast of $500 million. That would take the year-to-date current-account deficit to $3.8 billion, already in excess of 2 per cent of 2005 GDP.

Pridiyathorn said the central bank was attempting to control the current-account deficit and maintain stability for prices and foreign exchange by gradually hiking its policy rate, which was aimed at boosting business confidence and bolstering private investment. While private consumption and exports are growing satisfactorily, private investment has been growing more slowly than expected.

Pridiyathorn said the central bank earlier expected private investment growth of more than 13 per cent, excluding effects from inflation, due to high-capacity use. However, it has grown by only 10 per cent due to a continual drop in business confidence over several months. The drop in confidence is despite sufficient bank loans, he said.

“Normally, business confidence and private investment go with each other. If business confidence drops, private investment drops within three to six months. I see business confidence as a problem that needs to be tackled. We need to create an environment that encourages investment. This is sort of an art, not a science,” he said.

He said oil prices and the southern unrest were only two of several factors that discouraged investment here.

The BOT governor believed that private consumption would slow this year after recording significant growth for three consecutive years from 2002, particularly in tangible goods. But he said private consumption was still satisfactory at 4.5 per cent.

Anoma Srisukkasem

The Nation

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